Pound volatile as no-deal Brexit risks rise - as it happened

Graeme Wearden

from Economics | The Guardian on 2019-05-24 17:04 (#4FS5Q)

Sterling is under pressure after Theresa May announces she'll resign in June, paving the way for a Brexiteer successor

6.04pm BST

Time to wrap up, with the City heading home for the weekend.

It's still all go in Westminster, though - our Politics Liveblog has the latest:

6.03pm BST

Grim news from the high street -- Philip Green is planning deeper job cuts than first thought as he tries to rescue his Arcadia empire.

The number of stores set to close as part of Philip Green's rescue plan for his Arcadia retail empire will be substantially higher than the 23 previously thought, with the Evans and Miss Selfridge store chains set to bear the brunt.

The number of closures will be at least double the number set out in the rescue documents, resulting in several hundred more job losses, in addition to the 520 announced on Thursday.

5.29pm BST

In choppy trading, the pound has now popped back over $1.27 against the US dollar.

It's also staging a late fightback against the euro - now around a1.133.

With Theresa May's announcement that she will step down as prime minister on June 7th, the competition to succeed her will now begin in earnest even if the Tory party leadership contest won't officially begin until after that date.

With May's departure looking inevitable for some time now, markets' focus had already switched to her successor and his/her likely Brexit strategy.

4.46pm BST

The week is over, at least in the City of London.

Britain's blue-chip FTSE 100 index has ended the day 46 points higher, or up 0.65%. That's around half of yesterday's sell offs (triggered by trade war worries), leaving the Footsie at 7,277 points.

3.59pm BST

Business leaders have a clear message for Theresa's May's successor - end the Brexit deadlock and avoid a messy no-deal crisis.

3.57pm BST

In a blow to efforts to tackle the climate emergency, the number of flights in UK airspace is hitting a record high today:

3.41pm BST

The pound could fall to its lowest levels in over 30 years if a no-deal Brexit looks likely:

#uk #sterling Pound trading at 1.26 vs $. As hard Brexit probabilities rise under likely PM Boris Johnsoh key question is whether this path can be navigated without a further sterling crisis? #boe pic.twitter.com/9XRJIaa8aF

3.09pm BST

Donald Trump's suggestion that Huawei could be part of a US-China trade deal is pushing shares higher, says Ken Odeluga of City Index.

He writes:

2.59pm BST

Wall Street has opened higher, as traders look to end the week on a positive note.

The Dow Jones industrial average has risen by 130 points or 0.5% to 25,621 points.

2.12pm BST

The pound's weakness is pushing Britain's FSE 100 share index higher (as a weaker currency pushes up the value of overseas earnings).

The Footsie is now up 67 points, or 0.93%, at 7298.

2.04pm BST

Reuters has the details of Boris Johnson's comments on Brexit (made at a conference in Interlaken):

Britain should be prepared to walk out of the European Union without a deal if it is to negotiate a suitable exit agreement, British lawmaker and prime minister hopeful Boris Johnson said on Friday.

"We will leave the EU on October 31, deal or no deal," Johnson told an economic conference in Switzerland.

1.52pm BST

Ouch! The pound just hit a new four-month low against the euro, dropping below a1.13 for the first time since 21 January.

GBP drops on pearls of wisdom from the likely PM Johnson:
BORIS JOHNSON: BELIEVE WE'LL LEAVE EU OCT. 31 DEAL OR NO DEAL
WAY TO GET GOOD DEAL IS PREPARE FOR NO-DEAL
WANT PRAGMATIC BREXIT, BUT MUST PREPARE NO-DEAL
Johnson as PM 7:4 odds

Boris Trump (Art of the no deal) pic.twitter.com/TctDk7dzbL

*BORIS JOHNSON: WANT PRAGMATIC BREXIT, BUT MUST PREPARE NO-DEAL pic.twitter.com/MjJjoWUsIo

1.41pm BST

The pound's early rally is fading.... it's now slightly down against the euro at a1.1308, having already fallen for 14 days in a row.

This comes as the chances of Boris Johnson becoming prime minister rises

.@BorisJohnson Booming, he is up about 10 percentage points since I first updated this chart two hours ago with the probability of him being the next prime minister now nearly 50%: pic.twitter.com/X3ezexIJDM

We now see a rising chance that the UK will be compelled to ask the EU for a further delay to Brexit, the third time the deadline has been pushed back.

This would, in turn, raise the probability of a snap general election or second Brexit referendum."

1.24pm BST

Charles Hepworth, investment director at asset manager GAM, also predicts that the pound will struggle this summer, as the battle for the keys to Downing Street rages.

"As Theresa May's immovable Brexit plan finally collides with the unstoppable force of Parliament and its voting arithmetic, her resilience has finally waned. Her resignation in two weeks' time means that she will have held office for just a few days longer than Gordon Brown and her failure to deliver on the Conservative party's Brexit promise means that we must now face the likelihood of a hard Brexiteer successor as PM - with odds on Boris Johnson as the most likely candidate.

"The Pound Sterling has already discounted this to some degree, falling to levels seen in the immediate aftermath of the referendum in 2016 - and the decline is almost entirely due to the lingering effects of economic slowdown and the increased likelihood of a no-deal Brexit. However, the outcome has not been entirely accounted for, as whoever wins the Tory leadership race will still have to force their Brexit vision through an unwilling parliament and so the obscurity around Brexit continues.

1.14pm BST

The US stock market is still expected to open a little higher...

US Opening Calls:#DOW 25577 +0.36%#SPX 2831 +0.33%#NASDAQ 7326 +0.25%#IGOpeningCall

1.06pm BST

Guy Foster of wealth managers Brewin Dolphin, suspects Britain will soon turn to a general election to (possibly) break the Brexit deadlock.

He warns that hoping May's resignation ends the impasse would "raise optimism to an art form".....

While Theresa May's departure means we are heading in a new direction, that direction is not necessarily forward. Eventually a new leader may be able to galvanise support around a specific path, but it is difficult to anticipate that at this stage.

In the meantime, however, no matter your view of the efficacy of government, it is reasonable to be concerned that our lack of effective government may eventually have economic consequences."

12.17pm BST

A renewed Brexit crisis could grip the economy this coming autumn, fears Helen Dickinson OBE, chief executive of the British Retail Consortium.

She fears it could mess up retailers' planning for Christmas - with warehouses already groaning under the weight of stock-piling.

"There are only five months before Britain crashes out of the EU without a deal, causing prices to rise and reducing the availability of many goods on the shelves.

A no deal Brexit in October would present the worst of all worlds for our high streets and those who shop there. Retailers will be preparing for Christmas, stretching already limited warehousing capacity, and the UK will be importing the majority of its fresh food from the EU, magnifying the impact of border delays.

12.02pm BST

Uncertainty is no friend of the markets, or businesses. But investors and bosses now face two months of confusion as the battle to succeed Theresa May plays out.

A new prime minister will probably be in place by the end of July, so firms may hold off big decisions until the Conservative Party members have made their choice.

Conservative Party statement says leadership candidates will be down to the final two by the end of June, with the new leader in place before Parliament rises for the summer (on around July 24)

"The hope of a compromise and a Brexit deal that kept the UK close to the EU, even with perhaps a custom union to minimise trade disruption, seems to have now dissipated with the departure of Theresa May. With Parliament apparently against leaving without a deal, but incapable of agreeing on anything else, then the UK seems to be doomed to remain in limbo for some time to come.

"The biggest problem for the UK is the uncertainty and the effect that this has on business confidence and investment decisions. Whilst GDP growth has held up fairly well since the referendum, and even accelerated so far this year, the real impact will be felt now that a hard Brexit seems far more likely under a new PM.

11.48am BST

Not a massive reaction from foreign exchange markets today to T May resignation. In truth they'd been starting to price this in weeks ago (see chart 1: sterling vs euro past month). And still trading within the band it's been in for most of post-ref period (chart 2: past 5yrs) pic.twitter.com/q0S56ZnmFt

11.44am BST

Despite bouncing back over $1.27, the pound is still close to its lowest level this year.

As this chart shows, it has shed nearly five cents since early May, as the Brexit crisis roared back into the headlines this month.

"Over the last few weeks Sterling has dropped as speculation has intensified that Theresa May needed to resign in order to clear the way for a new leader. This yet again increases the uncertainty. The chances of further delay to Brexit have now increased but so too have the chances of a hard Brexit.

"Although widely expected as she approached the podium, Sterling still managed to trade frenetically for a short period of time, before dropping back to a more settled level. Sterling is acting like a rabbit caught in the headlights. Unable to jump up or down.

11.04am BST

The US stock market is expected to follow Europe's lead - it's called up 0.6% in pre-market trading (having shed 1.1% yesterday).

11.01am BST

Sarah Carlson, Moody's Senior Vice President, has warned that no-deal Brexit risks are rising.

She says:

"Prime Minister May's announcement today that she will resign on 7 June further amplifies the uncertainty around Brexit; the uncertainty around Brexit is clearly credit negative, weighing on investment and hiring decisions and ultimately growth.

The Prime Minister's resignation also increases the risk of a no-deal Brexit that, as we have said before, would have significant negative effects on both the UK sovereign and a range of other issuers."

10.57am BST

Theresa May's resignation hasn't dented today's stock market rally.

The FTSE 100 index is ending a volatile week on the front foot, now up 50 points at 7280 (but still 70-points down on the week).

10.56am BST

The pound's muted reaction to Theresa May's resignation highlights that her successor will face much the same problems as she did.

David Owen, chief European economist at investment bank Jefferies, says the make-up of the next cabinet will be crucial.

"So much will depend on not just who becomes the next Leader of the Tory Party and Prime Minister, but the team that is appointed. A senior team comprising One Nation Tories would be very different to that comprising Ultras.

As things stand, a further extension of Article 50 will be necessary. If this does end up in another vote, this will take at least 22 weeks to organise, which takes us likely beyond 31 October. Constitutionally, it will now be easier for any government intent on a No Deal Brexit to push this through - but the Parliamentary arithmetic has not and will not change."

10.38am BST

Dean Popplewell of trading firm OANDA says the political drama will keep the pound volatile in the next few months:

Sterling's record losing streak combined with the growing risks that Brexit will see a hard exit, is making fund managers abandon long-term 'bullish' bets. Just a few months ago, the base case was that Brexit would be delivered by PM May and that it would be a soft exit.

However, if we do see Boris Johnson, the current oddsmaker favorite, become Theresa May's successor, we could see the 'hardest' Brexit occur. The pound (1.2645), which is currently atop of its four-month lows, could see further pressure to target the psychological 1.2000 level and eventually the 2016 lows. A no-deal Brexit and a general election risks are likely to keep the pound under pressure.

Latest odds. pic.twitter.com/xGdk1frfuX

10.28am BST

Larry for leader?

Larry the cat leaving Number 10 could move the pound more than this pic.twitter.com/6gTfv0qd8c

10.21am BST

Prime minister Theresa May has announced that she will step down as leader of the Conservative and Unionist Party on 7th June.

That will trigger a leadership battle, with Brexiteers such as Boris Johnson and Dominic Raab seen as the early favourites. May will continue as prime minister until the process is concluded.

10.04am BST

Ruth Gregory of Capital Economics isn't too impressed by today's UK retail sales figures:

April's retail sales figures were better than most had feared, but nonetheless suggest that GDP growth will be weaker in Q2 than in Q1. Flat retail sales were better than it sounds following the surge in high-street spending over the previous three months and was rather higher than the consensus forecast for a fall of 0.3%. What's more, sales growth was revised up in January and March.

Admittedly, sales volumes might have been weaker had retailers not discounted over the Easter period. Indeed, the Office for National Statistics attributed some of the chunky 2.3% monthly rise in clothing sales to this factor as well as the unusually warm weather. Retail inflation dipped from 0.7% to 0.2%, its lowest since late-2016. Meanwhile, spending off the high street may also have been fairly soft. Indeed, car registrations have continued to plunge in April, while the Bank of England's Agents reported a slight deterioration in the turnover of consumer services firms.

9.50am BST

Lee McDarby, Corporate IP managing director at moneycorp, says today's retail sales figures show that British consumers are defying Brexit uncertainty. Retailers, though, are finding life tough.

The surprisingly upbeat retail sales figures are down to sustained online spending, perhaps boosted by falling unemployment.

A close look at the detail shows high street chains and department store sales are struggling, reflecting the store closure and job loss headlines we've seen recently."

9.45am BST

On an annual basis, UK shoppers bought 5.2% more stuff in April than in April 2018.

That suggests consumers haven't been spooked by the Brexit crisis, and have continued to spend.

9.41am BST

Just in: UK retail sales were flat in April, compared to March.

Online retailers selling clothing items were the driver to this growth, with the warm weather helping to boost sales.

9.30am BST

China's Commerce Ministry has issued a gloomy assessment of its economy.

It warns that the domestic economy still faces "downward pressures", and that the trade environment is growing "more uncertain and challenging".

Chinese Commerce Ministry: China trade environment growing more uncertain, there are more challenges for China trade; domestic economy faces downward pressure; some structural issues remain to be resolved for China's economy.

9.14am BST

The world's largest container shipping line has warned that the trade war is hurting economic activity.

Aside from the cyclical slowing of the global economy, the main risks to global container demand relate to the US-China trade negotiations.

The recent escalation of the trade-war induced by an increase in tariff rates and threats of implementing additional tariffs could take global container trade growth to the lower end of the 1-3% interval.

9.00am BST

Every cloud has a silver lining and all that...

Vietnam could be the biggest winner of the US-China trade deal. Exports to the US up 45% y/y. #macro

8.52am BST

Boing! European stock markets have made a spritely start to trading, after some whopping losses yesterday.

The FTSE 100 has gained 40 points (having lost 103 on Thursday) or 0.56%.

While labelling Huawei as 'something that is very dangerous', the President nevertheless went on to state that it is possible the tech company would 'be included in some kind of trade deal'.

That confusing statement potentially pushes open, however slightly, a door that was about to slam shut, and makes June's G20 summit in Osaka even more interesting.

8.36am BST

Trump's suggestion that Huawei could be part of a trade deal has brought some calm to the markets.

8.21am BST

China's government has had enough of American politicians bad-mouthing Huawei.

Foreign ministry spokesman Lu Kang has just told reporters in Beijing that certain US politicians are making all kinds of rumours, but not providing evidence.

8.08am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

"Huawei is something that is very dangerous.

"You look at what they've done from a security standpoint, a military standpoint. Very dangerous."

"It's possible that Huawei even would be included in some kind of trade deal.

If we made a deal, I can imagine Huawei being included in some form of, some part of a trade deal."

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